Gold falls to 2-month low of $4,450 as dollar and yields strengthen

Gold slid to its lowest level in two months as a stronger dollar and rising bond yields intensified pressure on the non-yielding metal.

Gold fell to $4,450.09 an ounce, its lowest in two months, as a stronger dollar and higher Treasury yields weighed on the precious metal amid growing expectations the Federal Reserve will raise interest rates to contain inflation.

"The biggest influence continues to be the Middle East. There was some lingering optimism, but as this continues to drag out, that optimism wanes," Peter Grant, vice president and senior metals strategist at Zaner Metals, said.

Spot gold dropped 1.3% to $4,450.09 an ounce, the lowest since March 30, while U.S. gold futures for June delivery fell 1.2% to $4,448.90. The U.S.-Israeli war with Iran that began in late February has driven Brent crude oil up 31%, stoking inflation fears and reinforcing expectations that central banks will tighten policy. The effective closure of the Strait of Hormuz, a passage for one-fifth of the world's oil, has compounded supply concerns.

The market now prices a 25-basis-point rate hike by the Fed before year-end, according to fed funds futures. Minneapolis Fed President Neel Kashkari said the central bank must focus on containing inflationary risks, though it was "far too soon" to predict when it could change its current policy rate. Despite being an inflation hedge, gold struggles in high-rate environments because it offers no yield.

Iran Ceasefire Talks Offer Brief Reprieve

Gold pared some losses after Iran's state TV reported that Tehran had obtained a draft of an initial unofficial framework for a memorandum of understanding with the U.S. Under the proposal, Iran would restore commercial shipping through the Strait of Hormuz to pre-war levels within a month, while the U.S. would withdraw military forces and lift its naval blockade. U.S. Secretary of State Marco Rubio said it could take "a few days" to negotiate a deal to halt the conflict.

But Iran said Tuesday the U.S. had violated a ceasefire by striking targets near the Strait of Hormuz, potentially complicating efforts to bring the war to a close. The uncertainty has kept gold under pressure as traders weigh the risk of prolonged conflict against the prospect of a diplomatic resolution.

PCE Data in Focus

Investors now turn to the U.S. Personal Consumption Expenditures Price Index for April, due Thursday, for clues on the path of monetary policy. A hotter-than-expected reading would reinforce the case for rate hikes and likely push gold lower. UBS lowered its year-end gold price target by $400 to $5,500, citing persistent risk from higher yields and the dollar.

Among other precious metals, spot silver rose 0.6% to $77.40 an ounce, platinum was little changed at $1,957.75, and palladium gained 0.9% to $1,391.68.

This article is for informational purposes only and does not constitute investment advice.